Drinks giant Diageo today reported a four per cent hike in sales of its top brands despite tough conditions in Europe caused by higher taxes and regulation.

The group saw volumes rise by two per cent in the UK during the six months to December 31 on the back of a six per cent increase for Baileys and a return to growth by Guinness.

Guinness volumes were two per cent higher than a year ago despite a price rise in April, while drinkers stocked up on Baileys over Christmas after the brand was used by UK retailers to bring more customers through their doors. In contrast, volumes of whisky and ready-to-drink Smirnoff products declined.

A strong performance in North America meant overall volumes of its top brands, including Smirnoff vodka and Johnnie Walker whisky, grew at four times the one per cent rate of growth in Europe.

Diageo captured a greater share of the markets for spirits, wine and beer in North America at a time when it also cut costs successfully.

Pre-tax profits before exceptional items totalled £1.24 billion - lower than the £1.3 billion a year earlier, but in line with market expectations.

However, the impact of currency swings on its results was underlined by the fact that turnover would have been a full £303 million higher than the £4.98 billion reported if exchange rates had been constant in the final six months of 2004.

Chief executive Paul Walsh said the company maintained its good record of improving profitability and growing sales before accounting for the impact of acquisitions.

He said: "We have made a good start to the year and we can maintain our full year guidance of six per cent organic operating profit growth."

Diageo trades in some 180 countries around the world and makes brands including Baileys, J&B, Jose Cuervo, Captain Morgan, Tanqueray, and Beaulieu Vineyard and Sterling Vineyards wines.

It employs 24,000 people globally and 5,000 people in the UK.

The company said higher taxes and regulation, health-related legislation and weak economic conditions provided the backdrop for the performance of its European operations.

Volumes in Ireland fell three per cent as the trend for drinkers to stay at home was accelerated by the introduction of a smoking ban in pubs and bars in March.

Cool summer weather and promotional activity enabled the company to slow the rate of decline in sales of Guinness in Ireland to one per cent, although some analysts were expecting the brand to return to growth in its home market.

Retailers and bar owners stocking up on brands ahead of a hike in duties and prices contributed to volumes rising one per cent in Spain despite a decline in the spirits market.

In the US, Diageo said volumes were five per cent higher than the same period of 2003, outstripping the two per cent growth of the overall market.